What is the Standard Deduction in India?
The standard deduction in India is a flat amount subtracted from salary and pension income under Section 16(ia) of the Income Tax Act, 1961 before computing taxable income. For FY 2025-26 (AY 2026-27) it is Rs 75,000 under the new tax regime (Section 115BAC) and Rs 50,000 under the old tax regime. It requires no bills or proofs, is automatic, and applies to every salaried taxpayer and pensioner irrespective of actual expenses.
Detailed definition
The standard deduction is the most universal and friction-free tax break for salaried Indians. It was originally introduced in 1974 as a percentage of salary, scrapped by the Finance Act 2005 in favour of itemised allowances (transport allowance Rs 19,200, medical reimbursement Rs 15,000), and reinstated as a flat Rs 40,000 by the Finance Act 2018. The reinstatement bundled the transport and medical allowances into one no-paperwork deduction. The flat amount was raised to Rs 50,000 by the Finance Act 2019 and remained there until the 2024 Budget lifted the new-regime amount to Rs 75,000.
The deduction operates at the head-of-income level. You compute gross salary (basic + DA + HRA + special allowances + bonus + perquisites), subtract the standard deduction, then any further allowances or perquisite exemptions, to arrive at income chargeable under the head Salaries. That figure flows into gross total income, against which Chapter VI-A deductions (80C, 80D, 80G, etc., available in the old regime) are then claimed.
Two practical points trip up new filers. First, the deduction is per-person, not per-employer; if you change jobs mid-year and both employers grant the standard deduction in TDS, you can only claim Rs 75,000 (new) or Rs 50,000 (old) in total when filing, and you may owe additional tax. Second, freelancers who also have a salaried side income can claim the standard deduction against the salaried portion only; their freelance income goes under Profits and Gains of Business or Profession and follows the presumptive scheme (Section 44ADA) or actual-expense rules instead.
Formula and key amounts
Income from Salaries = Gross salary - Standard deduction - Other Section 16 deductions Standard deduction (FY 2025-26): New regime (Sec 115BAC) = Rs 75,000 (raised from Rs 50,000 in Finance Act 2024) Old regime = Rs 50,000 (unchanged since FY 2019-20) Tax saved = Standard deduction x Marginal slab rate x (1 + cess) Max tax saved (new, 30% slab) = 75,000 x 30% x 1.04 = Rs 23,400 Max tax saved (old, 30% slab) = 50,000 x 30% x 1.04 = Rs 15,600
| Category | New regime FY 2025-26 | Old regime FY 2025-26 | Section |
|---|---|---|---|
| Salaried employee | Rs 75,000 | Rs 50,000 | 16(ia) |
| Pensioner (former employer) | Rs 75,000 | Rs 50,000 | 16(ia) |
| Family pensioner | Rs 25,000 | Rs 15,000 (or 1/3 of pension, whichever lower) | 57(iia) |
| Self-employed / business income | Not available | Not available | NA |
| Freelance (Section 44ADA) | Not available (50% deemed expense) | Not available (50% deemed expense) | 44ADA |
Worked example
Suppose Anil is a salaried IT employee in Hyderabad with FY 2025-26 gross salary income of Rs 18,00,000. He has no other income, no HRA exemption (lives in his own house), and contributes Rs 50,000 to NPS under 80CCD(1B). Compare the two regimes.
- Gross salary: Rs 18,00,000.
- Standard deduction (new regime): Rs 75,000. Income from salaries = Rs 17,25,000.
- Standard deduction (old regime): Rs 50,000. Income from salaries = Rs 17,50,000.
- Chapter VI-A old regime: Rs 1,50,000 (80C, fully used by EPF + PPF) + Rs 50,000 (NPS 80CCD(1B)) = Rs 2,00,000. Taxable income = Rs 15,50,000.
- Chapter VI-A new regime: NPS 80CCD(1B) not allowed; only 80CCD(2) employer NPS would qualify. Taxable income = Rs 17,25,000.
- Tax old regime: Rs 0 + Rs 12,500 + Rs 1,00,000 + Rs 1,65,000 + cess = approximately Rs 2,88,600.
- Tax new regime (FY 25-26 slabs): Rs 0 + Rs 15,000 + Rs 30,000 + Rs 45,000 + Rs 60,000 + Rs 67,500 + cess = approximately Rs 2,25,000.
Standard deduction history and politics
| Period | Amount | Notes |
|---|---|---|
| FY 1974-75 to 2004-05 | Percentage of salary (varying) | Originally 30 percent or Rs 12,000 cap; rules changed multiple times |
| FY 2005-06 to 2017-18 | Nil | Replaced by itemised allowances (transport + medical) |
| FY 2018-19 | Rs 40,000 | Reintroduced by Finance Act 2018, replacing transport + medical allowances |
| FY 2019-20 to 2023-24 | Rs 50,000 | Raised by Interim Budget 2019; available under both regimes from FY 2023-24 when new regime became default |
| FY 2024-25 onwards | Rs 75,000 (new) / Rs 50,000 (old) | Finance (No. 2) Act 2024 raised the new-regime figure to nudge filers toward the new regime |
The Rs 75,000 new-regime amount alone is roughly equivalent to losing 4 weeks of taxable income for a Rs 10 lakh earner. The asymmetric increase (new regime up, old regime unchanged) is the single largest policy lever the government has used to shift filers off the old regime since FY 2023-24.
Related terms
Related calculators on 3Tej
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Frequently asked questions
What is the standard deduction in India for FY 2025-26?
For FY 2025-26 (AY 2026-27) the standard deduction is Rs 75,000 for salaried taxpayers and pensioners under the new tax regime (Section 115BAC), and Rs 50,000 under the old tax regime. The new-regime amount was raised from Rs 50,000 to Rs 75,000 in the Finance (No. 2) Act 2024, effective from AY 2025-26. The old-regime figure has been Rs 50,000 since FY 2019-20.
Who can claim the standard deduction in India?
Only individuals with income chargeable under the head Salaries or Income from Pension can claim the standard deduction under Section 16(ia). It applies automatically; no proof or declaration is required. Self-employed professionals, business income earners, and recipients of family pension claim other deductions instead (family pensioners get a Rs 15,000 or one-third of pension, whichever is lower, under Section 57(iia) in the old regime and Rs 25,000 in the new regime from AY 2025-26).
Is the standard deduction available under the new tax regime?
Yes. The standard deduction is one of the very few deductions allowed under the new tax regime (Section 115BAC). For FY 2025-26 it is Rs 75,000 for salaried and pension income under the new regime, and Rs 50,000 under the old regime. Most other Chapter VI-A deductions (80C, 80D, 80E, HRA, LTA) remain disallowed under the new regime.
How does the standard deduction reduce my tax?
The standard deduction reduces the taxable salary itself, lowering the income on which slab rates apply. At the 30 percent marginal slab, a Rs 75,000 standard deduction saves Rs 75,000 x 31.2 percent (including 4 percent cess) = Rs 23,400 in tax under the new regime. Under the old regime, the Rs 50,000 deduction at the 30 percent slab saves Rs 15,600. The actual saving scales with your marginal slab rate.
Can pensioners claim the standard deduction in India?
Yes. Pension received from a former employer is taxed under the head Salaries (per CBDT clarification), so the same standard deduction of Rs 75,000 (new regime) or Rs 50,000 (old regime) applies. Family pension (received by family members of a deceased pensioner) is taxed under Income from Other Sources and gets a separate deduction: Rs 25,000 under the new regime or one-third of pension capped at Rs 15,000 under the old regime.
Do I need to submit proofs for the standard deduction?
No. The standard deduction requires no bills, receipts, or declarations. It replaced earlier reimbursement-based deductions for transport allowance (Rs 19,200) and medical allowance (Rs 15,000) that demanded receipts. The Finance Act 2018 reintroduced a flat standard deduction precisely to simplify compliance for salaried taxpayers. Your employer applies it automatically while computing TDS on salary.
Sources and further reading
- Income Tax Act, 1961, Section 16(ia) - CBDT, the operative bare-act text for standard deduction.
- Finance (No. 2) Act 2024 - raised the new-regime standard deduction from Rs 50,000 to Rs 75,000 effective AY 2025-26.
- Finance Act 2018 - reintroduced flat standard deduction of Rs 40,000, replacing transport and medical allowances.
- CBDT, Salaried Employee resources - regime comparison, TDS rules and Section 16 explainer.
- Ministry of Finance Budget Speech 2024 - Para on personal income tax, Hon'ble FM Nirmala Sitharaman, 23 July 2024.